MNI US OPEN - JPY Firms as BoJ Said to Mull Raising Inflation View

NEWS

EUROPE (MNI): Bank Credit Standards "Broadly Unchanged" In Q1-ECB
Credit standards across the eurozone were 'broadly unchanged' in the first quarter of 2024, though loan demand from firms declined despite expectations of recovery, the latest ECB Bank Lending Survey showed. The "ongoing central bank balance sheet reduction continued to exert tightening pressure", with banks reporting a small net tightening of credit standards, the ECB said. For the first time since Q4 2021, banks reported a moderate net easing of their credit standards for loans to households for house purchases (net -6%), whereas credit standards for consumer credit and other lending to households tightened further (net 9%).

ECB (MNI WATCH): ECB Likely To Point To June Cut
The European Central Bank is expected to hold its deposit rate at 4.00% on Thursday, but to signal that it could be ready for a first cycle cut in June as inflation eases. While Christine Lagarde is expected to continue to stress a data-dependent approach to policy setting, sources have told MNI that if guidance for a likely 25-basis-point cut is not included in the statement the ECB president could prepare wording to that effect to be used in answer to a question at the press conference.

GERMANY (BBG): German Defense Chief Calls for Loosening of Debt Restrictions
German Defense Minister Boris Pistorius threw his weight behind calls for reform of rules that restrict new borrowing by the federal government to help fund a radical overhaul of the nation’s armed forces. In an interview with public broadcaster ZDF late Monday, Pistorius said the Bundeswehr’s financial needs can’t be met solely by reallocating money from elsewhere in the budget once a special fund worth €100 billion ($109 billion) is exhausted in 2027.

ITALY (MNI): EU Gentiloni: FinMins Looking At More Flexible NGEU
EU finance ministers will look at ways of making implementation of its post-Covid recovery instrument NGEU easier and more flexible when they meet later this week, EU Economy Commissioner Paolo Gentiloni said Tuesday, noting the issue will be discussed at Friday’s ECOFIN Council in Luxembourg."#

FED (BBG): Bullard Says Three Fed Rate Cuts This Year Is ‘Base Case’
Former Federal Reserve Bank of St. Louis President James Bullard said he’s expecting three interest-rate cuts this year as inflation moves toward the central bank’s target while the economy remains resilient.“At this point, you should probably take the committee and chair at face value — their best guess right now is still three cuts this year,” Bullard said Tuesday in a Bloomberg TV interview with Haslinda Amin. “That’s the base case.”

RUSSIA/CHINA/US (BBG): Russia, China to Work on ‘Double Counteracting’ US-Led Alliance
Russia and China agreed to start a dialogue on Eurasian security with the aim of “double counteracting” the European-Atlantic alliance led by the US. “We have a common goal of increasing security in Eurasia,” Russian Foreign Minister Sergei Lavrov said Tuesday at a press conference with his Chinese counterpart Wang Yi in Beijing. “We agreed with our Chinese friends to start a dialogue and get other like-minded countries to join us.” Lavrov added that Wang proposed the idea of “double counteracting” the US and its allies in response to the “double deterrence” of Western countries against Russia and China.

JAPAN (BBG): BOJ Is Said to Mull Raising Inflation View on Strong Pay Deals
The Bank of Japan will likely consider raising its inflation forecast at a policy meeting later this month after surprisingly strong results from annual wage negotiations, according to people familiar with the matter. The central bank will probably discuss revising up its projection for consumer prices excluding fresh food from the current 2.4% for the fiscal year that started this month, the people said.

JAPAN (MNI): Japanese Consumer Confidence Rises Further
Japan's consumer confidence index posted its sixth straight rise in March, up 0.5 points to 39.5, as all components improved over the previous month, easing concern over weaker spending and prompting the Cabinet Office to maintain its assessment, data released on Tuesday showed. March’s rise supported the Bank of Japan’s view that private consumption has been resilient, despite the impact of price rises and developments, such as a decline in automobile sales due to the suspension of production.

BOJ (BBG): BOJ’s Ueda Keeps Door Open to Further Paring of Stimulus
Bank of Japan Governor Kazuo Ueda kept his options open for a further paring back of monetary easing as he avoided sounding clearly dovish with the yen hovering near a 34-year low. “We have to consider reducing the degree of monetary easing if the underlying price trend rises along with our outlook,” Ueda said in response to questions in parliament Tuesday. “We will carefully consider this at every policy meeting as it depends on incoming data.”

US/JAPAN (BBG): Biden, Kishida to Strengthen Defense Alliance With Eye on China
US President Joe Biden and Japanese Prime Minister Fumio Kishida plan to form a council on defense industries and allow shipyard workers in Japan to perform more maintenance work on US Navy ships as they look to shore up their military alliance, according to a senior administration official. Defense issues will be atop the agenda during a Wednesday meeting between the leaders, the senior US official said, speaking on condition of anonymity to share details ahead of an official announcement.

TURKEY/ISRAEL (BBG): Turkey Limits Exports to Israel Amid Islamist Backlash On Gaza
Turkey announced restrictions on exports to Israel after the Jewish state opposed Turkish aid drops over the Gaza Strip and President Recep Tayyip Erdogan faced criticism for maintaining trade ties. Turkey’s Trade Ministry announced a ban on the shipment of 54 items on Tuesday, including products that could be used for military purposes and construction materials like cement, steel, iron and aluminum. The Turkish lira extended losses after the announcement and dropped 0.6% to 32.22 per dollar as of 10:00 a.m. Istanbul time.

COMMODITIES (BBG): Iron Ore Set for Biggest Two-Day Jump Since 2021 on Demand Hopes
Iron ore headed for its largest two-day rally in more than two years on a brighter consumption outlook as China enters what’s typically the strongest season for steel demand and output. April and May are usually the busiest periods for building in China, and iron ore inventories are showing signs of topping out at ports — falling last week from their highest level since February 2023. Output from the nation’s blast furnaces is starting to rise again, according to Macquarie Group Ltd.

DATA

MNI: UK BRC MAR BY VALUE SHOP SALES LFL +3.2% YY, TOTAL +3.5% YY

EGB/GILT SUMMARY: EGBs/Gilts Firmer, But Still Below Friday’s Highs

Core/semi-core EGBs and Gilts are firmer on the day but remain below Friday’s highest levels. Focus across global markets remains on risk events later in the week (US CPI/PPI, ECB decision).

• In the absence of notable data or headline flow, supply has been the main theme this morning.
• Today’s 4.75% Oct-43 Gilt tap attracted an impressive 3.67x bid-to-cover, but Gilt futures saw a limited reaction.
• Eurozone supply includes a Belgian 5-year benchmark syndication (spread has been set), alongside conventional auctions from Austria and Germany.
• Despite this, futures have been happy to move higher alongside US Tsys through the morning.
• Bunds are +39 ticks at 132.22, while Gilts are +51 ticks at 98.79. A bearish technical threat nonetheless remains intact in both contracts.
• The German and UK cash curves have both bull flattened, while 10-year peripheral spreads to Bunds are tighter. The 10-year BTP/Bund spread is currently 2.6bps tighter at 136.8bps, down from the recent extreme of ~145bps seen last week.
• Today’s ECB Bank Lending Survey saw bank credit standards “broadly unchanged”, and wasn’t a market mover as a result.
• The UK/Eurozone calendar is very light for the remainder of today.

US TSYS: Drift Higher With Tomorrow’s CPI In Focus

Treasury futures have drifted higher through the European morning, currently +0-07 at 109-15+.

• Nonetheless, a technical downtrend remains intact following Monday's move lower.
• Overnight news flow saw ex St Louis Fed president Bullard express an expectation for three Fed rate cuts this year.
• Current Fed Funds pricing is little changed on the day, with just over 60bps of cuts priced through the remainder of ’24.
• Other speakers (Kashkari and Goolsbee) weighed in on the latest US jobs report (MNI’s review is here).
• US cash yields are 2 to 3.5bps lower today, with the belly of the curve outperforming.
• NFIB’s small business optimism survey is the only scheduled data release today, with no Fed speakers due either.
• Focus remains on tomorrow’s CPI and Thursday’s PPI reports.
• MNI’s CPI preview will be released later today.

FOREX: USD Index Subdued, Key 50-dma Support Underpins

• Amid muted newsflow and data releases, G10 FX trades well within recent ranges - keeping major pairs on their now well-trodden path. This has kept the USD Index underpinned, as the 50-dma support flagged earlier this week holds as the key downside level. The mark (at 103.949 today) successfully contained a pullback in prices earlier this month.
• Similarly, GBP/USD trades inside the technical parameters of 1.2575 - 1.2684, leaving markets to tread water ahead of the economic releases later in the week including the Bernanke review of Bank of England forecasting due on Friday.
• Spot gold is the standout in commodities space, as the precious metal crests at a new all-time high, buoyed by simmering geopolitical risk in the Middle-East and the break of key resistance en-route to 2359.33 this morning - record levels.
• Front-end vols are well bid as contracts begin to capture the release of US CPI on Wednesday (an overnight option struck today expires 90 minutes after the data release). Overnight implied vols across G10 are touching new April highs, most notably in NZD and CAD, which also capture their respective central bank's rate decisions tomorrow.
• Releases set for the duration of the Tuesday session include US NFIB Small Business Optimism data, with no central bank speakers due.

EQUITIES: US Futures Point to Mixed Cash Open

• Japan's NIKKEI closed higher by 426.09 pts or +1.08% at 39773.13 and the TOPIX ended 26.37 pts higher or +0.97% at 2754.69.
• Elsewhere, in China the SHANGHAI closed higher by 1.485 pts or +0.05% at 3048.537 and the HANG SENG ended 95.22 pts higher or +0.57% at 16828.07.
• Across Europe, Germany's DAX trades lower by 134.07 pts or -0.73% at 18184.37, FTSE 100 higher by 14.7 pts or +0.19% at 7958.28, CAC 40 down 44.87 pts or -0.55% at 8074.43 and Euro Stoxx 50 down 30.25 pts or -0.6% at 5015.8.
• Dow Jones mini down 28 pts or -0.07% at 39191, S&P 500 mini up 3.5 pts or +0.07% at 5256.25, NASDAQ mini up 24.25 pts or +0.13% at 18317.5.

COMMODITIES: Spot Gold Crests at a New Alltime High

• WTI Crude up $0.41 or +0.47% at $86.95
• Natural Gas up $0.02 or +0.92% at $1.861
• Gold spot up $24.47 or +1.05% at $2363.51
• Copper up $1.65 or +0.39% at $429
• Silver up $0.29 or +1.03% at $28.1135
• Platinum up $14.91 or +1.54% at $980.39